Tocor is considering the implementation of a lockbox collection system for its mid-western and western sales regions. Sales in those two regions are 30% of Tocor's annual sales of $560 million. The lockbox system will cost $187,000 a year and reduce collection time by 3 days. If Tocor could invest any released funds at 10.85%, should it use the lockbox system? Why or why not? (Assume 365 days per year.)

Question

Quizplus · Accepted Answer

The lockbox system would release funds by reducing collection time, but the cost of $187,000 exceeds the savings from investing the released funds, resulting in a loss of $37,181.

Tocor Is Considering the Implementation of a Lockbox Collection System